Market Entry Strategies

Why This Matters

When companies decide to go global, they face a critical strategic decision: how do they actually get into that foreign market? This isn't just about logistics—it's about balancing three competing forces that show up constantly on exams: control, risk, and resource commitment. Every market entry strategy represents a different trade-off among these factors, and understanding those trade-offs is what separates students who memorize definitions from those who can analyze real business scenarios.

You're being tested on your ability to evaluate why a company would choose one entry mode over another given specific circumstances—market conditions, company resources, strategic goals, and risk tolerance. The strategies range from low-commitment approaches like piggybacking to high-commitment moves like greenfield investment, with plenty of hybrid options in between. Don't just memorize what each strategy is—know what level of control, risk, and investment each requires, and when each makes strategic sense.

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Low-Commitment Entry Modes

These strategies minimize financial exposure and resource investment, making them ideal for companies testing new markets or those with limited capital. The trade-off is reduced control over how your product reaches and is perceived by customers.

Direct Exporting

• Selling directly to foreign customers without intermediaries—the simplest path to international sales
• Retains marketing control while avoiding the costs of establishing foreign operations
• Requires navigating tariffs and regulations independently, demanding strong knowledge of target market conditions

Piggybacking

• Leverages another company's distribution network to access foreign markets without building your own infrastructure
• Minimizes entry costs by riding on established relationships and market knowledge
• Sacrifices marketing control since your brand's presence depends on your partner's reputation and priorities

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Contractual Entry Modes

These strategies use legal agreements to grant foreign partners rights to your intellectual property or business model. You're essentially "renting out" your brand, technology, or systems in exchange for royalties or fees.

Licensing

• Grants foreign firms permission to produce and sell using your brand, patents, or proprietary technology
• Generates royalty revenue with minimal capital investment or operational involvement
• Limits quality control since the licensee operates independently within agreed terms

Franchising

• Extends licensing to include an entire business system—operations, training, branding, and ongoing support
• Provides franchisees a proven model with built-in brand recognition, reducing their startup risk
• Requires strict operational compliance to maintain brand consistency across all locations

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Partnership-Based Entry Modes

These strategies involve collaborating with foreign entities to share resources, risks, and market knowledge. The key distinction is whether you're creating a new legal entity together or simply cooperating as independent firms.

Joint Ventures

• Creates a new business entity co-owned by two or more parent companies from different countries
• Combines complementary strengths—local market knowledge from one partner, technology or capital from another
• Shares both risks and rewards but can generate conflict when partners have different management styles or strategic priorities

Strategic Alliances

• Cooperative agreements without forming a new entity—partners remain legally independent
• Enables resource sharing and market access with more flexibility than joint ventures
• Easier to enter and exit but may lack the commitment and alignment that formal partnerships provide

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High-Commitment Entry Modes

These strategies require significant capital investment and organizational resources but offer maximum control over foreign operations. The trade-off is full exposure to market risks and longer timelines to profitability.

Wholly Owned Subsidiaries

• Full ownership of a foreign operation established by the parent company
• Complete control over strategy, branding, and operations—no partner conflicts or profit sharing
• Highest risk exposure since the company bears all losses from market downturns or operational failures

Greenfield Investment

• Building a new operation from scratch in the foreign market—new facilities, new workforce, new everything
• Maximum customization of operations to match company standards and strategic vision
• Requires substantial capital and time before generating returns, making it the slowest entry mode

Acquisition

• Purchasing an existing foreign company to gain immediate market presence and operational capacity
• Fastest high-control entry mode—instant access to customers, distribution, and local expertise
• Integration challenges can undermine value if corporate cultures clash or operations don't align

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Specialized Entry Modes

Turnkey Projects

• Designing and building a complete facility that's handed over to the client ready to operate
• Common in capital-intensive industries like manufacturing, energy, and infrastructure
• Transfers operational responsibility after completion—the builder exits once the "key is turned"

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Quick Reference Table

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Self-Check Questions

1. Which two entry strategies both generate royalty income but differ in the level of ongoing operational involvement required from the entering company?

2. A company wants full control over its foreign operations but needs to enter the market quickly. Which entry mode best balances these priorities, and what's the main risk it faces?

3. Compare and contrast joint ventures and strategic alliances. Under what circumstances would a company prefer the flexibility of an alliance over the commitment of a joint venture?

4. Arrange these strategies from lowest to highest resource commitment: acquisition, licensing, greenfield investment, piggybacking. For each, identify the primary trade-off the company accepts.

5. An FRQ describes a small manufacturer with limited capital wanting to test demand in a new foreign market before committing significant resources. Which entry mode would you recommend, and how would your recommendation change if the company had substantial capital but lacked local market knowledge?